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HMRC internal manual

Corporate Finance Manual

Old rules: derivative contracts: qualified exclusions: meaning of guaranteed return

Meaning of ‘guaranteed return’

This guidance applies to periods of account beginning before 1 January 2005, or beginning after that date and ending before 16 March 2005

The legislation applied to contracts and associated transactions designed to produce a guaranteed return.

A guaranteed return is defined as something that

  • was produced from one or more relevant contracts and associated transactions (see CFM83150) and
  • equated in substance to the return on an investment of money at interest.

A return equated with an interest return is where

  • risks from fluctuations in the subject matters (of the derivative contract(s) and associated transactions) were eliminated or reduced, and
  • the result of doing this was that the arrangement produced the sort of return that would have resulted if money had been lent at interest on normal lending or depositing terms.

The return might have been a fixed rate or a rate fluctuating by reference to a market rate such as LIBOR.